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Government regulatory gunshots ring out | Why are exchanges like Binance and Coinbase being targeted by the SEC? What is the future direction of regulation?

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Government regulatory gunshots ring out | Why are exchanges like Binance and Coinbase being targeted by the SEC? What is the future direction of regulation?

This article is provided by KryptoGo

Since the collapse of FTX, the regulatory efforts on cryptocurrencies in the United States have significantly intensified. The recent major actions in the past two weeks have once again demonstrated that with the development of virtual currencies and assets, the decentralization of cryptocurrencies has sparked a global investment frenzy. Its advantages include open data, discreet transactions, and no need for third-party intervention. However, its unregulated nature and irreversible transactions have brought potential trading risks, fraud, and money laundering issues to the forefront.

For example, last week on February 10th, the U.S. Securities and Exchange Commission (SEC) charged the global cryptocurrency exchange Kraken's STaaS service with issuing and selling securities without registration. The two parties reached a settlement, with Kraken agreeing to suspend providing STaaS services to U.S. customers and paying a $30 million fine to the SEC.

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On February 13th, the U.S. SEC issued a "Wells notice" to Paxos, the issuer of the stablecoin BUSD, threatening to sue Paxos.

Various events point towards the future direction of cryptocurrency regulation, which is likely to be towards "securitization." Even Coinbase, touted as the most compliant centralized exchange, has come under scrutiny by the SEC, with its related staking and Earn services facing compliance challenges.

"All these events reflect the U.S. government's stricter regulation and scrutiny on the cryptocurrency market, projects, and investors," said Ouyao Wei, CEO of Taiwan's anti-money laundering solution provider KryptoGO. "The future trend of cryptocurrencies will no longer tolerate unregulated stablecoins; only those fully compliant with regulations will stand the test of time."

How VASPs can Enhance Risk Management to Increase Compliance and Trust with the Taiwanese Government?

Government compliance for virtual currency service providers typically involves the following aspects:

  1. KYC (Know Your Customer): Verifying customer identities and backgrounds to prevent money laundering, financing terrorism, and other illegal activities.

2. AML (Anti-Money Laundering): Preventing money laundering and other illegal activities by monitoring transaction flows, establishing risk assessment models, and investigating suspicious activities.

  1. CFT (Combating the Financing of Terrorism): Preventing the laundering of terrorism funds through transaction monitoring and blacklist establishment.

4. Tax Compliance: Ensuring that virtual currency service providers comply with local tax laws and regulations.

  1. Security and Risk Management: Protecting user assets, safeguarding against hacker attacks and other risks by establishing security systems and processes, conducting risk assessments, and vulnerability scans.

6. Regulatory Compliance: Ensuring compliance with local laws and regulations, including license applications, registration, reporting, and supervision.

According to Ou Yao-wei, one of the most common requirements for Virtual Asset Service Providers (VASPs) is anti-money laundering regulations. In Taiwan, the Financial Supervisory Commission officially included "virtual currency platforms and trading businesses" in the anti-money laundering scope starting in July 2021. This includes implementing real-name transactions for "virtual currency investments," requiring operators to verify customer identities. In Japan, where only a few citizens were able to emerge unscathed from this wave of events, the country also proposed more detailed legislative amendments, requiring exchanges to proactively report customer identities during transactions.

Financial Supervisory Commission Chairman Huang Tien-mu also stated at a press conference on January 12th of this year that cryptocurrency businesses have financial transactions with banks. Therefore, the current regulatory focus is to trace customer information through bank KYC processes, which can effectively combat money laundering.

In the context of anti-money laundering regulations, for VASPs in Taiwan, the requirements for real-name authentication (KYC, know your customer) or digital identity authentication (eKYC) are gradually becoming more prominent, enhancing the enterprise's KYC practices as a "life-saving measure." For end-users, this enhances transaction security, allowing users to trade on exchanges with greater peace of mind and confidence in utilizing all exchange functions effectively.

Implementing KYC Solutions for Enterprises: Four Key Considerations

1. Real-Time Monitoring of Negative News to Quickly Identify High-Risk Individuals

During the KYC process, enterprises need to conduct background checks on customers, perform risk assessments, and mark customers who have been flagged for financial fraud or are under investigation.

Traditionally, compliance officers would manually review news related to users, print and highlight relevant articles. The KryptoGO Compliance Anti-Money Laundering solution combines web scraping and AI NLP language processing technology to quickly identify and mark key individuals in articles, avoiding irrelevant names such as reporters, police, or interviewees. Additionally, the solution can autonomously highlight negative news keywords, such as illegal, conceal losses, fake trades, false financial reports, and prosecutions.

2. Centralized Data Retrieval to Expose Blacklisted Individuals

Traditional KYC requires compliance officers to individually search various external sources. An integrated solution that consolidates multiple data sources, such as business registration, legal data retrieval systems, Wikipedia, high-sensitivity lists, can save significant search time, allowing for centralized searching and content extraction with marking to prevent any oversight of blacklisted individuals.

3. Professional Risk Recommendations

After conducting searches, enterprises need precise audit judgments and references. In a solution system, supplementing with a professional team, government endorsements, or customer feedback to form a "potential customer risk score" can provide enterprises with a more informed decision-making basis.

4. Record Audit Trails, Generate Compliance Reports with One Click, Never Fear Unexpected Government Scrutiny!

Today, the regulatory sword of virtual asset scrutiny may strike at any time, so all enterprises must be prepared with compliance reports for unforeseen circumstances. Previously, compliance officers would print and archive audit content one by one in paper format, a time-consuming and cumbersome process. A good compliance solution should help enterprises record each audit trail, generate compliance reports with a single click, store them in the system for easy access, and be prepared for any potential challenges.

To assist VASPs in conducting business under more compliant conditions, the KryptoGO Compliance Anti-Money Laundering solution provides an all-in-one customer review solution. The team comprises professionals in finance, regulation, and technology, including two internationally recognized anti-money laundering experts, focusing on providing financial institutions with the most efficient anti-money laundering system setup and consulting services.

For more information on implementing KryptoGO Compliance to optimize your KYC processes, please contact us to discuss your needs. Our team will provide you with the most suitable system setup recommendations. Contact Us